Shares of Hon Hai remain steady on Q1 results

TAIPEI -- Shares of Hon Hai Precision Industry Co. (鴻海精密) stayed flat Thursday morning off an earlier high, but still appeared resilient by outperforming the broader market after the world's largest contract electronics maker posted better-than-expected results for the first quarter, dealers said.

As of yesterday, shares of Hon Hai closed up 0.45 percent, or NT$0.4, at NT$88.60, with 24.07 million shares changing hands. The weighted index on the Taiwan Stock Exchange ended up 5.49 points, or 0.06 percent, at the day's high of 8,880.65

Investors' Hope Remains High

Investors still have high hopes that Hon Hai, an Apple concept stock, will see its sales momentum pick up in the second half of this year on the back of the launch of new devices by the U.S. consumer electronics giant, the dealers said.

"The stock opened higher in a knee-jerk reaction to its first quarter results. But selling emerged to cap the gains as the broader market came under pressure," Hua Nan Securities analyst Kevin Su said.

"Hon Hai shares remained resilient as its first-quarter results beat the market's earlier estimate. In particular, the company's gross margin was impressive, although the business was in slow-season mode in the first quarter," Su said.

In a statement released a day earlier, Hon Hai said it posted NT$19.54 billion in net profit, or NT$1.49 in earnings per share (EPS). The market had previously anticipated Hon Hai's first-quarter EPS ranged between NT$1.2 and NT$1.3.

The first-quarter net profit rose 19.5 percent from a year earlier. Its EPS during the three-month period was higher than the NT$1.26 recorded over the same period of last year, while the figure was slower than the fourth quarter's NT$3.26, due to the slow-season effect.

Cost Reduction Enhances Profitability

During the January-March period, Hon Hai's gross margin stood at 6.04 percent. "The 6.04 percent gross margin showed Hon Hai's efforts in cutting costs as the company tended to follow its clients by setting up production lines in the same places, which helped the company rein in costs," Su said.

Although the first-quarter gross margin was lower than the fourth quarter's 6.91 percent due to seasonal factors, it was higher than the 5.68 percent registered in the same period of last year, she said.

"In addition, Hon Hai has benefitted from orders from Apple and low-cost smartphone models under its own brand to offset the impact from the slow-season effect in the first quarter," Su said.

"The market has widely expected Hon Hai will continue to receive orders from Apple, which will unveil the next generation of the iPhone later this year," Su said. Apple accounts for more than 40 percent of Hon Hai's total sales.

Su said, however, that the first-quarter results failed to maintain the earlier strength of Hon Hai shares as the broader market remained haunted by a pullback on Wall Street overnight.

He said that as Washington reported a higher-than-expected producer price index for April, the market has feared that the U.S. Federal Reserve will speed up the pace of ending its bond-buying program.